Robert R. Rowley PS

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Real Estate Foreclosures

Foreclosure by power of sale involves the sale of the mortgaged property by the mortgage holder (usually a bank or other lender), not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property, when compared with foreclosure by judicial sale. A majority of states allow foreclosure by power of sale. Proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor. Foreclosure by the power of sale accomplishes the same thing as a judicial sale. However, there are also some difficulties associated with this method of foreclosure. Advantages and Disadvantages Some advantages and disadvantages of a foreclosure by power of sale include:

• While the process involves less court oversight than foreclosure by judicial sale, foreclosure by the power of sale is often subject to judicial review at some point, if issues about title need to be resolved by the court. These would include actual defects in the deed, and the priority of various lien holders and lessees on the property.

• In many jurisdictions, the mortgage holder is prohibited from seeking a deficiency judgment if the holder chooses to sell the property through extra-judicial means.

• The mortgage form itself must generally allow for the power of sale in order for this type of foreclosure to take place.

• A foreclosure by the power of sale cannot take place if the mortgage is in the form of an absolute deed.

A deed of trust is required in order to conduct a foreclosure by the power of sale. A deed of trust conveys the property from the mortgage holder to the trustee, who holds the property in trust for the mortgage holder. In the instance of foreclosure, the trustee, not the mortgage holder, conducts the sale of the mortgaged property. The trustee is generally instructed by the mortgage holder to foreclose on the mortgage and is under no obligation to determine whether this foreclosure is justified. A deed of trust and trustee supervised foreclosure allows the mortgage holder to bid for the foreclosed property, provided the trustee and the mortgage holder are not closely associated. Otherwise, a mortgage holder cannot bid for the mortgaged property when the foreclosure is by power of sale.

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